BILL ANALYSIS
SB 84
Page 1
SENATE THIRD READING
SB 84 (Leno)
As Amended September 4, 2009
Majority vote
SENATE VOTE : Vote not relevant
SUMMARY : Authorizes counties and the City and County of San
Francisco to impose a vehicle license fee upon approval of
two-thirds of a county board of supervisors and a majority of
local voters. Specifically, this bill :
1)Authorizes a county board of supervisors, by ordinance, to
impose a voter-approved local assessment (vehicle assessment)
for general revenue purposes, if all of the following
conditions are satisfied:
a) The ordinance complies with requirements of existing law
pertaining to vote thresholds that must be attained before
a local government or district can impose either special or
general taxes;
b) The ordinance is approved by a two-thirds vote of the
board of supervisors;
c) The ordinance proposing the "vehicle assessment" is
approved by a majority vote of the voters voting on the
ordinance; and,
d) The board of supervisors transmits to the Department of
Motor Vehicles (DMV) and the Franchise Tax Board (FTB) a
certified copy of the ordinance imposing the vehicle
assessment immediately after the results of the election by
the voters are certified.
2)Requires any ordinance imposing a "vehicle assessment" to
include the following specific provisions:
a) The vehicle assessment is to be imposed on residents of
the county, or city and county, for the privilege of
operating a vehicle or trailer coach on public highways in
the county or city and county;
b) The amount of the vehicle assessment is to be set at the
difference between 2% of the market value of a vehicle or
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trailer and the current vehicle license fee (VLF) and
cannot exceed 2% of a vehicle's market value;
c) Any adjustment to the rate required to be made because
of a change in the rate of the VLF cannot take effect
until the first day of the fiscal year (FY) following the
one in which the change became operative; and,
d) The county, or city and county, contracts with the
California DMV to administer and collect the vehicle
assessment.
3)Provides that a voter-approved ordinance imposing a vehicle
assessment that was approved by the board of supervisors and
the voters prior to this bill becoming effective is
enforceable, if both of the following apply:
a) The assessment is not imposed until at least 90 days
after the effective date of this bill.
b) The board of supervisors ratifies adoption of the
ordinance after the effective date of this bill and prior
to the vehicle assessment being levied.
4)Prescribes the following responsibilities for DMV in
administering a vehicle assessment:
a) To collect the voter-approved vehicle assessment
pursuant to a contract with the county or the city and
county.
b) To deduct its costs in administering the voter-approved
local assessment from the collected assessments.
c) To transmit to the State Controller for deposit in the
General Fund (GF) the amount necessary to compensate the GF
for the loss incurred in the prior year as the result of
the deductions taken by the taxpayers for the vehicle
assessments under the Personal Income Tax (PIT) Law
[Revenue and Taxation Code (R&TC) Part 10 (commencing with
Section 17001) and the Corporation Tax Law (R&TC Part 11
(commencing with Section 23001)].
d) To transmit revenues from the assessments to the county,
or the city and county, as promptly as feasible.
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e) Develop, in consultation with the FTB, a reporting
process that enables the department to report to the FTB in
a timely manner the data necessary for the board to prepare
the estimate of revenue loss, as specified.
5)Provides that if a county, or city and county, imposes a
vehicle assessment and, as a result, experiences a reduction
in revenue, the state is not liable for making the county, or
city and county, whole.
6)Requires the FTB to report to DMV an estimate of the total
amount of revenue lost to the state in the prior year
resulting from deductions taken under the PIT Law for taxes
paid as a result of the vehicle assessment having been
imposed.
7)Requires DMV to withhold from vehicle assessment revenues an
amount equal to revenues lost to the state in the prior year
because of PIT Law deductions, as reported by the FTB, and to
deposit that amount in the GF.
EXISTING LAW :
1)Imposes a VLF, which is in lieu of a personal property tax on
California motor vehicles, at a rate based on the taxable
value of the vehicle. The taxable value of a vehicle is
established by the purchase price of the vehicle, depreciated
annually according to a statutory schedule. Prior to May 19,
2009, the VLF tax rate was set at 0.65% of the value of a
vehicle. For vehicles registered between May 19, 2009 and
June 30, 2011, the VLF rate is temporarily increased to 1.15%
[ABx3 3 (Evans), Chapter 18, Statutes of 2009]. The revenues
from the portion of the rate increase from 0.65% to one
percent are deposited in the state GF, whereas revenues from
the additional increase of 0.15% are dedicated to specific
local public safety programs.
2)Provides, under Article XI, Section 15 of the California
Constitution, that VLFs collected by the state are allocated
to cities, counties, and cities and counties, less the costs
of collection and any refunds.
3)Authorizes cities, counties, and special districts to impose a
general tax for general governmental purposes with the
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approval of a majority of the voters.
4)Authorizes cities, counties, and special districts to impose a
special tax for specified purposes with the approval of
two-thirds of the voters.
5)Allows taxpayers to deduct the VLF amount on their state
income tax returns as an itemized deduction. VLF is also
deductible for federal income tax purposes.
FISCAL EFFECT : Assuming that, beginning on January 1, 2011, all
counties, including the City and County of San Francisco, impose
a vehicle assessment, local VLF revenues would increase $3.8
billion annually beginning in 2011-12. However, the FTB staff
estimates that this bill will result in an annual GF revenue
loss of $180 million in FY 2011-12 and $10 million in FY 2012-13
due to the reduction in state PIT liabilities (because of
increased VLF itemized deductions on state income tax returns).
Under this bill, the GF would be reimbursed for the losses
arising from the increased VLF deductions, but with a one year
lag. Thus, the GF would experience a one-time loss of about
$180 million in FY 2011-12, and ongoing reductions of about $10
million per year. It is estimated that this bill will have no
revenue impact for FYs beginning with FY 2013-14. One of the
assumptions underlying these estimates is that each county would
raise the local vehicle assessment to the maximum rate of 2%.
Finally, the DMV would incur one time costs of up to $543,000
and ongoing costs of $112,000 to administer the program. Up
front costs would be reimbursed by counties implementing the
local VLF increase and ongoing costs would be deducted from VLF
assessments.
COMMENTS :
1)This bill, as introduced, has not been heard by any policy
committee. As amended, this bill is identical to SB 10
(Leno), which was introduced in the current legislative
session. SB 10 was held under submission in the Assembly
Appropriations Committee.
2)State VLF . The VLF is a state tax levied on the purchase
price of a vehicle, and subsequently annually assessed against
the vehicle's value adjusted by a statutory depreciation
schedule. The VLF was established by the Legislature in 1935
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in lieu of a property tax on vehicles. Proposition 1A,
approved by the voters in November 2004, requires that VLF
revenue from the existing 0.65% rate be allocated to support
local health, mental health, and social services costs under
Realignment or otherwise allocated to local government. In
February 2009, the rate of the VLF was temporarily increased
from the current rate of 0.65% to a rate of 1.15%, except for
commercial vehicles with a gross weight of 10,000 pounds or
more. Revenues from the portion of the increase from 0.65% to
1% are retained by the GF and revenues from the additional
increase of 0.15% are transferred to a newly created Local
Safety and Protection Account, which is continuously
appropriated for specific local public safety programs. The
VLF rate increase is effective for registrations beginning May
19, 2009 (corresponding to the timing of a weekly VLF billing
cycle) and expires on June 30, 2011.
3)Local VLF . In 1993, AB 925 (Burton), authorized the City and
County of San Francisco to levy a 2% VLF for purposes of
public transit financing so long as transit fares are not
increased. The fee would have required a two-thirds vote of
the electorate. It has never been enacted by the City and
County of San Francisco. At the time of its enactment, it was
estimated that the surcharge could have yielded over $300
million for the City and County. However, the potential fee
has effectively been voided due to a recent increase in
transit fares.
4)Deductibility of the VLF for federal and state income tax
purposes . As a personal property tax, the VLF is deductible
for both federal and state income tax purposes. Thus, for
those who itemize deductions, up to 40% of the additional VLF
would effectively be borne by the state and federal
governments in the form of reduced income tax payments. The
same would be true of a local VLF such as that proposed by
this bill. The purpose of this provision is to ensure that
the State GF is made whole for any losses arising from
additional income tax deductions claimed by the residents
because of the additional vehicle assessment. The GF is
reimbursed in arrears for this loss.
5)Administration of local vehicle assessments . This bill
requires the FTB and DMV to administer the local vehicle
assessment and requires that each agency transmit the revenue
back to the county, minus the costs of administration and
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reimbursements to the GF. This bill does not restrict the
total administration costs (the imposition, administration and
transmittal of the tax or fee) for either DMV or FTB.
Further, the FTB may not be able to estimate accurately the
loss to the GF if the local vehicle assessments are deductible
for state income tax purposes. DMV accepts payments of
registration fees from any entity or individual and does not
keep track of which taxpayer pays the fee. DMV's registration
system is designed around vehicles, and not individuals, and
it will be costly to modify that system to collect the
necessary information.
6)The interaction of local vehicle assessments with other local
taxes . Under existing law, cities and counties may impose a
local tax under the Bradley-Burns Uniform Local Sales and Use
Tax Law, which requires that the rate of tax be fixed at 1% of
the sales price of tangible personal property (TPP) sold at
retail in the local jurisdiction or purchased outside that
jurisdiction for use within it. Local governments also are
authorized, by the Transactions and Use Tax Law and the
Additional Local Taxes Law, to levy "district" taxes, for
general or special purposes, subject to voter approval,
provided that the combined rate of tax in the county does not
exceed 2%. In general, district taxes levied under these
provisions are levied based on a percentage of the sales price
of the TPP. Beginning July 1, 2009, 132 local jurisdictions,
including cities, counties, and special purpose entities,
impose a district tax for general or specific purposes. Some
cities and counties have more than one district tax, while
others have none.
This bill will insert an additional layer into California's
complicated tax structure, thus, potentially making an already
confusing system even more complicated for taxpayers to
understand. Additionally, this bill might have an impact on
voters' support of other local ballot measures that would
raise taxes, either at the county or city level. The voters
within that area may "max out" on local taxes and may be less
willing to approve other local ballot tax measures that are
dedicated to fund specific local needs or local projects.
Also, some counties may not be as willing to put a vehicle
assessment on the ballot knowing that it may impede its
ability to ask for tax increases on other important local
programs in the future.
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7)Similar Legislation .
SB 10 (Leno), introduced in the current legislative session, is
identical to this bill. SB 10 was held under submission in
the Assembly Appropriations Committee.
AB 1342 (Evans), introduced in the current legislative session,
authorizes counties, under specified circumstances, to adopt a
local PIT, a local VLF, or both. AB 1342 is pending in this
committee.
AB 1590 (Leno), introduced in the 2007-08 Legislative Session,
was similar to this bill, but was limited to the City and
County of San Francisco. AB 1590 was held in the Senate
Revenue and Taxation Committee.
AB 799 (Leno), introduced in the 2005-06 Legislative Session,
is very similar to this bill, except it applied only to the
City and County of San Francisco. AB 799 was vetoed by the
Governor. In his veto message, the Governor stated:
"Within hours of taking office in 2003, I signed an
Executive Order to reverse the car tax increase. That
action returned $4 billion to the people of California.
Putting that money back into the hands of hard working
Californians is one of the ways we have helped our economy
grow over the last three years.
"This measure would, in effect, reinstate the car
tax for the people of San Francisco. In fact, if
the vehicle license fee increase proposed by this
bill were enacted, the people of San Francisco could
pay more than twice the amount to register their
vehicles than anyone else in the state.
"As noted in my veto messages of prior years, I am
not opposed to modest
increases in fees if such increases are approved by
the impacted voters and
not addressed in a piecemeal fashion. Although
this bill requires voter
approval, it impacts only one county."
AB 1208 (Yee), introduced in the 2005-06 Legislative Session,
would have imposed an additional VLF on the residents of the
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City and County of San Francisco for the purpose of funding
maintenance and improvements of roads. The fee would have been
a flat fee per registered vehicle. AB 1208 was vetoed by
Governor Schwarzenegger.
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)
319-2098
FN: 0003001